The Government of Gibraltar is developing legislation relating to tokenised digital assets (tokens), essentially those created and traded using distributed ledger technology (DLT).

The financial regulator made a statement on Initial Coin Offerings in September. Then, Gibraltar’s minister for commerce, Albert Isola MP, announced that the Government’s would formulate its position on initial token offerings (also known as initial coin offerings or ICOs) by this month. In December, the Government canvassed the opinions of interested parties by issuing a discussion paper on token regulation circulated to Gibraltar’s Finance Centre Council, an umbrella organisation comprising local professional associations.

After taking people's viewes into account, the Government has begun work on a new law to regulate:

• the promotion, sale and distribution of tokens by persons connected with Gibraltar;
• secondary market activities relating to tokens, carried out in or from Gibraltar; and
• the provision, by way of business, in or from Gibraltar of investment advice relating to tokens.

A bill is expected in the second quarter of this year. Gibraltar’s DLT regulations, which came into effect on 1st January, have imposed a licensing regime on intermediaries that use DLT to store or transmit customers' assets, but they do not extend to the use of tokens as a means of raising finance, typically for early-stage start-ups.

The proposed token regulations will establish disclosure rules, requiring adequate, accurate and balanced disclosures of information to anyone considering purchasing tokens, and measures to detect and prevent financial crime such as money laundering and terrorist finance.

Siân Jones, a senior advisor on DLT at the GFSC and a frequent contributor to our pages, told Compliance Matters: “Token regulation is the natural progression following the regulation of DLT providers, being vital to the protection of consumers. One of the key aspects of the token regulations is that we will be introducing the concept of regulating authorised sponsors who will be responsible for assuring compliance with disclosure and financial crime rules.”

The regulation of investment funds that take in digital assets such as cryptocurrencies and similar DLT-based tokens is also being reviewed.